SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
[x] THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission File Number: 033-78954
SCOTSMAN HOLDINGS, INC.
(Exact name of Registrant as specified in its Charter)
DELAWARE 52-1862719
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8211 TOWN CENTER DRIVE 21236
BALTIMORE, MARYLAND (Zip Code)
(Address of principal executive offices)
(410) 931-6000
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year - if changed since
last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO __
As of March 31, 1999, 6,196,674 shares of common stock ("Common Stock")
of the Registrant were outstanding.
<PAGE>
SCOTSMAN HOLDINGS, INC.
INDEX
FORM 10-Q
PART I - FINANCIAL INFORMATION Page
-----
Item 1.Financial Statements
Consolidated Balance Sheets at March 31, 1999 1
and December 31, 1998
Consolidated Statements of Operations for the three 2
months ended March 31, 1999 and 1998
Consolidated Statements of Cash Flows for the three 3
months ended March 31, 1999 and 1998
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of 8
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 6.Exhibits and Reports on Form 8-K 12
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
SCOTSMAN HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31,
1999 December 31,
Assets (Unaudited) 1998
------ ----------- ----
(dollars in thousands)
<S> <C> <C>
Cash $ 609 800
Trade accounts receivable, less allowance for
doubtful accounts 41,806 39,244
Prepaid expenses and other current assets 15,114 13,976
Rental equipment, net of accumulated depreciation of
$108,407 in 1999 and $102,614 in 1998 671,036 640,634
Property and equipment, net 48,868 46,679
Deferred financing costs, net 23,949 25,161
Goodwill and other intangible assets, net 176,206 159,817
Other assets 13,305 14,980
-------- -------
$990,893 941,291
======= =======
Liabilities and Stockholders' Equity
------------------------------------
Accounts payable $ 11,104 12,651
Accrued expenses 37,827 26,220
Rents billed in advance 22,656 21,702
Long-term debt 871,038 45,447
Deferred income taxes 103,758 93,124
-------- -------
Total liabilities 1,046,383 999,144
--------- ---------
Stockholder's equity:
Common stock, $.01 par value. Authorized 10,000,000
shares; issued 9,507,407 shares 95 95
Additional paid-in capital 232,177 231,826
Retained earnings 8,094 6,082
-------- --------
240,366 238,003
Less treasury stock, at cost - 3,310,733 common shares (295,856) (295,856)
--------- -------
Net stockholders' deficit (55,490) (57,853)
--------- --------
$990,893 941,291
======== =======
See accompanying notes to consolidated financial statements.
1
<PAGE>
SCOTSMAN HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Operations
Three months ended March 31, 1999 and 1998
(Unaudited)
1999 1998
(in thousands except
share and per share amounts)
Revenues:
Leasing $ 47,575 31,861
Sales:
New units 15,023 9,170
Rental equipment 5,056 3,446
Delivery and installation 13,660 7,897
Other 7,280 5,779
----- -----
Total revenues 88,594 58,153
------ ------
Costs of sales and services:
Leasing:
Depreciation and amortization 8,600 5,913
Other direct leasing costs 6,544 4,754
Sales:
New units 12,248 7,502
Rental equipment 3,785 2,466
Delivery and installation 9,965 5,863
Other 1,111 1,278
------- --------
Total costs of sales and services 42,253 27,776
------ ------
Gross profit 46,341 30,377
------ ------
Selling, general and administrative expenses 18,277 13,634
Other depreciation and amortization 3,732 1,539
Interest, including amortization of deferred
financing costs 20,274 14,057
------ ------
Total operating expenses 42,283 29,230
------ ------
Income before income taxes 4,058 1,147
Income tax expense 2,043 458
------ ------
Net Income $ 2,015 689
====== =====
Earnings per common share $ 0.33 .14
======= =======
Earnings per common share, assuming dilution $ 0.31 0.13
======= =====
See accompanying notes to consolidated financial statements.
2
<PAGE>
SCOTSMAN HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three months ended March 31, 1999 and 1998
(Unaudited)
1999 1998
(dollars in thousands)
Cash flows from operating activities:
Net income $ 2,015 689
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 13,559 8,293
Provision for bad debts 871 603
Deferred income tax expense 1,989 420
Non-cash option compensation expense 351 ---
Gain on sale of rental equipment (1,271) (980)
(Increase) decrease in net trade accounts
receivable (918) 63
Decrease in other assets 3,286 1,528
Increase in accrued expenses 11,607 9,900
Other (3,693) 2,948
----- -----
Net cash provided by operating activities 27,796 23,464
------ ------
Cash flows from investing activities:
Rental equipment additions (18,823) (23,475)
Proceeds from sales of rental equipment 5,056 3,446
Purchases of property and equipment, net (2,796) (4,483)
Purchase of Evergreen Mobile Company, net of cash acquired (37,000) ---
------ ---------
Net cash used in investing activities $ (53,563) (24,512)
------ ------
(continued)
3
<PAGE>
SCOTSMAN HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
(Unaudited)
1999 1998
(dollars in thousands)
Cash flows from financing activities:
Repayment of promissory note payable $ --- (21,834)
Proceeds from long-term debt 119,822 85,676
Repayment of long-term debt (94,231) (62,503)
Increase in deferred financing costs (15) (272)
--------- ---------
Net cash provided by financing activities 25,576 1,067
------ -----------
Net decrease in cash (191) 19
Cash at beginning of period 800 296
------- -------
Cash at end of period $ 609 315
======= ========
Supplemental cash flow information:
Cash paid for income taxes $ 169 58
======= ========
Cash paid for interest $ 8,951 4,223
====== ======
See accompanying notes to consolidated financial statements.
</TABLE>
4
<PAGE>
SCOTSMAN HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in thousands, except share amounts)
(1) ORGANIZATION AND BASIS OF PRESENTATION
Scotsman Holdings, Inc. ("Holdings" or the "Company") was organized in
November, 1993 for the purpose of acquiring Williams Scotsman, Inc.
("Scotsman"). The Company conducts business solely as a holding company,
the only significant asset of which is the capital stock of Scotsman.
Therefore, any cash dividends to be paid on the Company's common stock, or
cash interest to be paid on notes of the Company, are dependent upon the
cash flow of Scotsman.
(2) FINANCIAL STATEMENTS
The financial information for the three months ended March 31, 1999 and
1998 has not been audited. In the opinion of management, the unaudited
financial statements contain all adjustments (consisting only of normal,
recurring adjustments) necessary to present fairly the Company's financial
position as of March 31,1999 and its operating results and cash flows for
the three months ended March 31, 1999 and 1998. The results of operations
for the periods ended March 31, 1999 and 1998 are not necessarily
indicative of the operating results for the full year.
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these financial
statements be read in conjunction with the financial statements and notes
thereto included in the Company's latest Form 10-K.
(3) RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to current
year presentation.
(4) ACQUISITION
On February 1, 1999, Scotsman acquired all of the outstanding stock of
Evergreen Mobile Company, a privately held Washington corporation ("EVG"),
in a transaction accounted for under the purchase method of accounting.
Total consideration for the acquisition of EVG was approximately $37,000,
including the repayment of existing indebtedness of EVG. Such amount is
subject to revision upon completion of an audit of the acquired entity. The
purchase price paid was allocated to the net assets acquired of
approximately $19,000 with the excess representing goodwill and other
intangible assets. The purchase price allocation was based upon estimates
of the fair value of the net assets acquired. These estimates may vary from
actual amounts ultimately recorded. The acquisition was financed with
borrowings under Scotsman's amended credit facility.
5
<PAGE>
SCOTSMAN HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(5) GOODWILL AND OTHER INTANGIBLE ASSETS
The excess of cost over fair values of net assets acquired in purchase
transactions has been recorded as goodwill and is being amortized on a
straight line basis over 20 to 40 years. Other identifiable intangibles
acquired include assembled workforce and covenant not to compete, which are
being amortized on a straight line basis over periods of 21 to 86 months.
As of March 31, 1999 and 1998, accumulated amortization was $2,970 and
$228, respectively.
On a periodic basis, the Company evaluates the carrying value of its
intangible assets to determine if the facts and circumstances suggest that
intangible assets may be impaired. If this review indicates that intangible
assets may not be recoverable, as determined by the undiscounted cash flow
of the entity acquired over the remaining amortization period, the
Company's carrying value of intangible assets is reduced by the estimated
shortfall of cash flows.
(6) EARNINGS PER SHARE
Earnings per common share is computed by dividing net earnings by the
weighted average number of common shares outstanding during the periods.
The following table sets forth the components of the weighted-average
shares outstanding for the basic and diluted earnings per share
computations:
<TABLE>
<CAPTION>
March 31,
1999 1998
<S> <C> <C>
Weighted-average shares - basic earnings per share 6,196,674 4,920,135
Effect of employee stock options 356,568 228,916
---------- ----------
Weighted-average shares - diluted earnings per share 6,553,242 5,149,051
========= =========
</TABLE>
6
<PAGE>
SCOTSMAN HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(7) INCOME TAXES
The difference between the Company's reported tax provision for the three
months ended March 31, 1999 and the tax provision computed based on U.S.
statutory rates is primarily attributed to non-deductible goodwill
amortization expense of $1,202.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
FORWARD LOOKING STATEMENTS
Certain statements in this Form 10-Q for the quarter ended March 31, 1999
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause actual results to differ materially from future
results expressed or implied by such forward-looking statements. Such factors
include, among others, the following: substantial leverage and the ability to
service debt; changing market trends in the mobile office industry; general
economic and business conditions including a prolonged or substantial recession;
the ability to finance fleet and branch expansion, locate and finance
acquisitions, and integrate recently acquired businesses into the Company; the
ability of the Company to implement its business and growth strategy and
maintain and enhance its competitive strengths; the ability of the Company to
obtain financing for general corporate purposes; intense industry competition;
availability of key personnel; industry over-capacity; risks associated with the
"Year 2000" phenomenon; and changes in, or the failure to comply with,
government regulations. No assurance can be given as to future results and
neither the Company nor any other person assumes responsibility for the accuracy
and completeness of these forward-looking statements. Consequently, undue
reliance should not be placed on such forward-looking statements, which speak
only as of the date hereof. The Company undertakes no obligation to publicly
release the result of any revision to these forward-looking statements that
maybe made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1998.
The results of operations for the three months ended March 31, 1999 include
the effect of three acquisitions completed during the nine month period ended
March 31, 1999. These acquisitions added a total of approximately 17,500 units
to the lease fleet.
Revenues in the quarter ended March 31, 1999 were $88.6 million, a $30.4
million or 52.3% increase from revenues of $58.2 million in the same period of
1998. The increase resulted from a $15.7 million or 49.3% increase in leasing
revenue, a $5.9 million or 63.8% increase in new unit sales, a $5.8 million or
73.0% increase in delivery and installation revenue, a $1.6 million or 46.7%
increase in sales of used units and a $1.5 million or 26.0% increase in other
revenue. The increase in leasing revenue is attributable to a 50.9% increase in
the average lease fleet to approximately 72,000 units at March 31, 1999, offset
by a slight decrease in the average fleet utilization of less than one
percentage point to 85% and a decrease of $1 in the average monthly rental rate.
The decrease in the average monthly rental rate is a result of modest rate
increases in Scotsman's major products offset by changes in fleet mix. The
increase in new and used sales revenue is primarily due to the overall branch
expansion that Scotsman has experienced over the
8
<PAGE>
last several years. The increase in delivery and installation revenue is
attributable to the increases in the leasing and sales revenue described above.
Other revenue increased as a result of increases in the rental of steps, ramps
and furniture as well as miscellaneous revenue related to services provided for
customer-owned units.
Gross profit for the quarter ended March 31, 1999 was $46.3 million, a $15.9
million or 52.6% increase from the first quarter 1998 gross profit of $30.4
million. This increase is primarily a result of an increase in leasing gross
profit of $11.2 million or 53.0%. This increase in leasing gross profit is a
result of the increase in leasing revenue described above combined with an
increase in leasing margins from 66.5% in 1998 to 68.2% in 1999. Excluding
depreciation and amortization, leasing margins increased from 85.1% to 86.2% in
1999.
Selling, general and administrative (SG&A) expenses increased by $4.6 million
or 34.1% from 1998. This increase is the result of the growth experienced by
Scotsman, both in terms of fleet size and number of branches as compared to
1998. Scotsman's branch network has expanded from 73 branches at March 31, 1998
to 82 branches at March 31, 1999. The overall increases in SG&A expenses are due
to increases in field related expenses, primarily payroll and occupancy,
incurred in connection with this branch expansion and fleet growth.
Other depreciation and amortization increased by $2.2 million to $3.7 million
at March 31, 1999 from the same period in 1998. Of this increase, $1.2 million
relates to the amortization of goodwill and other intangible assets recorded in
connection with acquisitions. The remaining increase relates to depreciation on
increased balances of property and equipment and inventories of steps and ramps
associated with the overall growth of Scotsman's branch network and lease fleet
as discussed above.
Interest expense increased by $6.2 million or 44.2% to $20.3 million in 1999
from $14.1 million in 1998. This increase is the result of increased borrowings
to finance acquisitions and as a result of financing the other fleet and branch
growth.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1999 and 1998, the Company's
principal sources of funds consisted of cash flow from operating and financing
sources. Cash flow from operating activities of $27.8 million and $23.5 million
for the three months ended March 31, 1999 and 1998, respectively, was largely
generated by the rental of units from Scotsman's lease fleet and sales of new
mobile office units.
The Company has increased its EBITDA and believes that EBITDA provides the
best indication of its financial performance and provides the best measure of
its ability to meet historical debt service requirements. The Company defines
EBITDA as net income before interest, taxes, depreciation, amortization and
non-cash compensation expense. EBITDA as defined by the Company does not
represent cash flow from operations as defined by generally accepted accounting
principles and should not be considered as an alternative to cash flows as a
measure of liquidity, nor should it be considered as an alternative to net
income as an indicator of the Company's operating performance. The Company's
EBITDA increased by $14.3 million or 63.4% to $37.0 million for the first
quarter of 1999 compared to $22.7 million for the same
9
<PAGE>
period of 1998. This increase in EBITDA is a result of increased leasing
activity resulting from the overall increases in the number of units in the
fleet, partially offset by a slight decrease in utilization and average monthly
rental rate due to changes in fleet mix, and increased SG&A expenses required to
support the increased activities during the first quarter of 1999.
Cash flow used in investing activities was $53.6 million and $24.5 million in
the three months ended March 31, 1999 and 1998, respectively. The Company's
primary capital expenditures are for the discretionary purchase of new units for
the lease fleet and units purchased through acquisitions. Scotsman seeks to
maintain its lease fleet in good condition at all times and generally increases
the size of its lease fleet only in those local or regional markets experiencing
economic growth and established unit demand. Cash provided by financing
activities of $25.6 million and $1.1 million in the three months ended March 31,
1999 and 1998, respectively, was primarily from borrowings under the line of
credit. Additionally, in 1998, Scotsman paid dividends to the Company primarily
to effect the repayment of a promissory note in the amount of $21,834.
The Company believes it will have, for the next 12 months, sufficient
liquidity under its revolving line of credit and from cash generated from
operations to meet its expected obligations as they arise.
IMPACT OF THE YEAR 2000
The Company has developed a comprehensive Year 2000 Compliance Plan designed
to ensure that all of its significant or "mission critical" computer systems
will function properly with respect to dates in the year 2000 and beyond. To
date, the Company has completed all phases of its plan, including the
assessment, remediation, testing and implementation of its key business computer
applications affected by the Year 2000 issue. During the past three years, the
Company has upgraded and/or replaced certain computer hardware and software
systems that are significant to its business operations. Such systems have been
determined to be Year 2000 compliant. Modification and testing of software
applications has been completed and the software is currently operational. Many
of these system replacements/upgrades were a part of the Company's business
expansion and technology initiatives and were not undertaken in response to Year
2000 issues. Additionally, the Company has surveyed its significant suppliers,
large customers and financial institutions to ensure that those parties have
appropriate plans to remediate Year 2000 issues where their systems interface
with the Company's systems or otherwise impact its operations. To date, the
Company is not aware of any such third party with a Year 2000 issue that would
materially impact the Company's results of operations, liquidity or capital
resources. Lastly, the Company's products and services are not directly impacted
by the Year 2000 issue as there are no computer processors or embedded systems
in its products that make use of century date logic. While the Company believes
its planning efforts are adequate to address its Year 2000 concerns, there can
be no guarantee that the systems of other companies on which the Company's
systems and operations rely will be converted on a timely basis and will not
have a material effect on the Company. However, due to the geographic diversity
of the Company's 82 branch offices and the regionalized nature of manufacturers
and other vendors servicing the branch network, the likelihood of Year 2000
failures having a material impact on the conduct of the Company's daily business
operations is not significant. Total costs related to Year 2000 initiatives are
insignificant to the Company's results of operations or financial
10
<PAGE>
position. The Company has prepared a contingency plan for all mission critical
computer applications that could be impacted by the Year 2000 issue. The
contingency plan involves manual workarounds, use of alternate vendors and
manufacturers and adjusting staffing strategies.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
None
(b) Reports on Form 8-K.
None
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its behalf by
the undersigned thereunto duly authorized.
SCOTSMAN HOLDINGS, INC.
By: /s/ Gerard E. Keefe
-------------------
Gerard E. Keefe
Senior Vice President and
Chief Financial Officer
Dated: May 14, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME CAPACITY DATE
---- -------- ----
<S> <C> <C>
/s/ Gerard E. Keefe Senior Vice President and May 14, 1999
- ---------------------------------- Chief Financial Officer
Gerard E. Keefe
/s/ Katherine K. Giannelli Vice President and Controller May 14, 1999
- ---------------------------------
Katherine K. Giannelli
</TABLE>
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 609
<SECURITIES> 0
<RECEIVABLES> 42,072
<ALLOWANCES> 266
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 839,510
<DEPRECIATION> 119,606
<TOTAL-ASSETS> 990,893
<CURRENT-LIABILITIES> 0
<BONDS> 871,038
0
0
<COMMON> 95
<OTHER-SE> (55,585)
<TOTAL-LIABILITY-AND-EQUITY> 990,893
<SALES> 88,594
<TOTAL-REVENUES> 88,594
<CGS> 42,253
<TOTAL-COSTS> 42,253
<OTHER-EXPENSES> 22,009
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,274
<INCOME-PRETAX> 4,058
<INCOME-TAX> 2,043
<INCOME-CONTINUING> 2,015
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,015
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.31
</TABLE>
